The New Normal In International Trade Law

Overview – The Canada-US Debacle 

A discussion of current trends in international trade law needs to begin with the unprecedented and acrimonious trade war launched by the Trump administration against Canada starting in early 2025, the outcome of which is far from certain. Even if some kind of armistice is reached in the next few days or weeks, these recent events will profoundly shape the bilateral relationship for years to come. 

The origins of that war are rooted in the destructive MAGA ideology of the Trump administration, unapologetically violating US obligations under the WTO Agreement, shattering the foundations of the post-WWII Bretton Woods rules based system at large. That’s the global picture in a broad sense. 

When it comes to US-Canada trade, there’s the same disregard for treaty obligations. Even though a free trade partner under CUSMA, Trump hit Canada with duties (on autos, steel, aluminum, etc.) in February 2025 saying. “We don’t need their cars, we don’t need their lumber, we don’t need their energy. We don’t need anything from Canada.” 

Shaky bilateral negotiations ahead of the mandated CUSMA review were cancelled by Trump in October 2025. Even with some CUSMA-compliant trade being duty free, the relationship deteriorated further in July 2026, with Trump threatening Canada with 50% tariffs on hundreds of items under the discredited and long forgotten Smoot-Hawley Tariff Act of 1930. 

When negotiations to resolve these threatened tariffs collapsed on August 21st and the 50% US duties came into force, Canada announced it would retaliate, putting out a list of US imports worth some C$28 billion annually. Trump then threatened additional duties if Canada followed through with these.

This unprecedented trade war has damaged the CUSMA beyond repair. While it remains nominally in force, its centrepiece and core rationale — duty free trade — is gone. And with that, the deal’s very purpose disappears. 

At this juncture, it’s difficult to see how Canada and the US can restore mutual confidence. Even if the two sides resume talks, these will be fraught and uncertain. Even if the CUSMA is not officially terminated, it’s evident that North American free trade is now a fiction and unlikely to be restored in any comprehensive way even after the end of Trump’s term in office. 

The Global Context – Dealing with Hegemonic Powers 

Let’s turn to the global context. In his highly regarded speech at the WEF in Davos in January 2026, Prime Minister Carney said government leaders needed to take the world as it is, not as we might like it to be, that nostalgia was not going to allow middle-tier countries to successfully confront today’s global challenges. 

The PM called on these middle powers to work together to counter the rise of hegemonic great power rivalry, in order to build a more cooperative, resilient world. 

The following is a less-than-scholarly summary of how the Canada-US trade war reflects the damage done by the Trump administration to the multilateral trading order generally. 

The main point is that so-called trade “deals” strong-armed by Trump, one-off arrangements with preferences and concessions and reciprocal bargains have destroyed decades of the GATT-based system and the effectiveness and relevance of the WTO as steward of the multilateral trading order. 

This taking the world as it is – a non-romantic and decidedly non-nostalgic view as the PM advocated in Davos.

Inevitable Decline of the World Trade Organization 

The WTO is under serious stress. Bereft of long-term, committed support from the US (and possibly other Western governments), the WTO’s position as a global rulemaking and dispute settlement body could be beyond repair. 

Disenchantment with the Organisation had been building for years in Washington even before Trump and will not likely disappear even after Trump leaves office. 

Apart from the political situation vis-à-vis the US, there are institutional factors responsible for the WTO’s weaknesses, starting with a decision-making process prevents forward movement, where a single member can oppose decisions and stymie progress. This has prevented any new negotiating efforts at the plurilateral level. 

Second, the WTO’s dispute settlement system is dysfunctional. Even before the US refused to support elections to the Appellate Body, that system was overweighted with complex, highly legalistic processes, producing unwieldy, long winded panel decisions that were arcane in the extreme, even to experts. 

Added to these stresses, the accession of China in 2001, while initially heralded as an achievement, has become a negative factor. At root is China’s system of state capitalism, controlled directly and indirectly by the Communist Party, a system that’s fundamentally incompatible with the WTO’s underlying market-based rationale. 

The result is that the WTO is saddled with the world’s most powerful member being unsupportive and the second major power operating an economic regime that’s directly contrary to the market-based underpinning of the Organisation. 

These so-called institutional factors have seriously wounded the WTO and the multilateral trading system generally. It is doubtful it can ever be returned to the role it enjoyed for several decades following its creation in 1994.

No Respect for the Rules 

The basic building blocks of the GATT-WTO system are: (a) fixed tariff rates (“bound” duties set out in each members’ Schedule of Concessions); (b) non discriminatory (MFN) treatment for all imports, regardless of source; (c) non discrimination (national treatment) as between imports and domestic products; plus (d) prohibitions of export and import controls except under very limited circumstances. There are other GATT rules, but these are the key ones. 

As noted above, the Trump administration (both Trump I and Trump II) has disregarded all of these rules, concluding preferential “handshake” trade deals with Japan, the UK, the EU and others. For example, in return for a range of concessions, Trump’s May 2025 deal with the UK provides for tariff reductions on British autos, steel, and specific agricultural products. Failing to apply these lower rates to all other WTO members breaks the foundational non-discrimination (MFN) rule of the GATT system. 

As noted by leading experts (H. Horn and P. Mavroidis, Centre for Economic Policy Research, 25 June 2025): “The advent of the second Trump presidency has caused the worst crisis that the WTO has experienced. It is not meaningful to try to detail the unprecedented magnitude of tariffs that have been announced, partly implemented, temporarily withdrawn, and reinstated at the whims of President Trump. . . . it is clear that the policies the Trump administration is pursuing violate fundamental commitments in the WTO Agreement, as well as its spirit.”

All of this is clearly shown by the unilateral duty surcharges under the 1962 Trade Expansion Act and, in Canada’s case, under the 1930 Smoot-Hawley tariff, illustrations of US disregard for these basic GATT obligations. 

Given the dominance of the US as the world’s most powerful economy, the trend in all of these one-off “deals” is that the GATT/WTO building blocks listed above – bound tariffs and non-discriminatory treatment – have been completely disregarded. 

The result has been a major and perhaps permanent change in the principal conditions in international trade – moving from the stability of the Bretton Woods system to an arbitrary, less reliable and decidedly less stable one. 

National Security – A Fact of Life 

National security – however elastic the term – is used aggressively by the Trump administration in ways far in excess of the restrictions under GATT rules. National security has become a dominant feature of today’s arbitrary and ever-shifting trading world. 

The Trump administration will not accept the least constraints on the Oval Office’s tariffs based on self-defined national emergencies, regardless of sectors or geographic regions. 

This is exemplified by the now well-known bases for Trump tariff increases – among others, section 301 of the 1974 Trade Act, section 232 of the 1962 Trade Expansion Act and, as already noted in Canada’s case, section 338 of the 1930 Smoot-Hawley Tariff Act. Most knowledgeable experts consider these measures as impervious to legal challenge. 

The result is that national security is embedded as a major factor in international trade, another one of the forces that has altered the foundational underpinnings of the multilateral system. 

Ascendency of Economic Sanctions 

Another is the large-scale deployment of economic sanctions, likewise led by the US and largely followed by other Western democracies. Sanctions are tough instruments aimed at persons, enterprises and organisations to counter international human rights violations, terrorism sponsorship, nuclear proliferation, and offensive state actions of a variety of sorts, the Russian war against Ukraine being one of the best examples.

Even before Trump, American governments used sanctions as a powerful tool to prevent access to the US financial system, including dollar-denominated transactions and use of the international payments system. 

There are now thousands of individuals, companies and organisations that are the target of Western sanctions, with profound impact on international business. As noted a few years ago in The Economist (22 April 2021): “…sanctions have become a central tool of foreign policy. Governments increasingly see them as a way to try to change other states’ behaviour in situations where diplomacy alone is insufficient, but military intervention is seen as too risky or heavy-handed…” It added: “As the use of sanctions has grown, so has their variety. What was once a smattering of trade embargoes has become a global mesh of coercive tools, some covering countries or whole economic sectors, others single firms or individuals.”

In short, the widespread deployment of sanctions by the US and its allies has become another indelible factor in international trade law. It will not be going away. 

Weaponising of Export and Import Controls 

In addition to sanctions, GATT/WTO rules permit members to prohibit trade in nuclear materials, arms and munitions, endangered species, etc., together with other actions in times of international emergency or to implement binding decisions under the United Nations Charter. The GATS contains almost identical national security exceptions in respect to trade in services. 

As stated in a recent report by the International Bar Association (“Introduction on export controls: economic sanctions”, 27 January 2025): “Export controls and economic sanctions regulations are designed to govern the export of confidential items, technologies or the prohibition of certain transactions. These regulations also manage interactions with embargoed or sanctioned countries, entities and individuals. The principles and objectives underlying these measures are multifaceted. Countries impose export controls and economic sanctions to protect national security interests, promote foreign policy and achieve economic and political objectives.” The report added: “…By regulating the export of sensitive technologies, dual-use items and confidential technologies, governments aim to prevent these assets from falling into the hands of adversaries. For instance, the US states that it implements export controls on advanced semiconductor technologies and cybersecurity tools to maintain a technological edge and protect its own national security.”

As technology expands and national security, defence, cyber-security, AI and other aspects of digitisation continue to confront governments, controlling sensitive exports will be a major factor in international relations. As a result, as with the other features of this brave new world already noted, export controls are firmly entrenched in the global trading environment. 

The New Normal 

The foregoing has looked at the world of today, taking it as it is, not harkening back to former days when things were simpler. We have to face the decline of the WTO and the multilateral rules-based order, with one-off preferential deals, national security, unilateral sanctions and trade controls forming the new normal in global relationships, cutting across geographic regions and sectors far beyond their original conception. 

Looking ahead then, the challenge is to find some degree of proportion so that these inherently destabilising measures do not get totally out of hand. 

There are hopeful signs. One is the advent of regional trade agreements that enshrine the basic principles of the GATT/WTO system, showing that these building blocks remain effective and respected among like-minded countries. 

In this regard are free trade treaties such as the Canada-EU Agreement (CETA), the Asia-Pacific Trade Partnership (CPTPP), together with others in the works. For Canada, this includes trade agreements in the late negotiating stage with Mercosur and India. 

The key element in these bilateral and regional FTAs, unlike the weakened CUSMA framework, is that they comprise broadly shared objectives and, we assume, good faith undertakings among those that agree to abide by GATT/WTO rules. These existing and prospective deals, contrary to the MAGA deals, follow the basic foundations of the GATT/WTO market liberalising rules that were summarised earlier. 

These are the hopes of the future in countering the unfortunate effects of the new normal.